Lack of knowledge preventing Britons from making the most of their money.

There are 22.1 million ISA holders in the UK1 but, according to the latest research from Octopus Investments, most of us don’t understand the basics when it comes to investing in an ISA, the options available, and the rules surrounding them.

According to the poll of more than 2,000 UK adults, ISA transfers cause the most confusion, with 1 in 2 (54%) stating they didn’t understand the rules. More than a third (36%) of adults were also in the dark as to the benefits of using an ISA compared to other savings and investments products.

To what extent do you understand the following?

% of UK adults who don’t understand

Rules for transferring funds between ISA accounts

54%

The number of separate ISA accounts an individual can open

52%

The annual ISA allowance

40%

How to withdraw money from an ISA

38%

The benefits of an ISA over other savings and investment products

36%

When asked specific questions, two thirds (67%) of people were unaware that you can transfer funds from a Cash ISA into other types of ISA, and more than half (54%) didn’t know that you can split your savings into different types of ISA each year.

Millions losing money, despite wanting growth

The most commonly cited reason for people using an ISA was to boost their savings, with half (49%) of people selecting growth as an objective. Yet a significant majority (66%) of those looking for growth were currently saving through a Cash ISA, with 2 in 5 in five (38%) people saying this was the only ISA they held.

Overall, 60% of those currently using an ISA only have a Cash ISA account.

With average interest rates for Cash ISAs at 0.92%2 and inflation at 2% or above3, this means millions of Brits are actually losing money in real terms, despite their stated goal of growing their money.

Sam Handfield-Jones, Head of Octopus Choice, commented:

“The tax-free ISA wrapper is incredibly powerful, and the go to saving investment for many Brits, but it’s clear from our research that not everyone is making the most of their ISAs. When you consider the number of different ISA products we now have, and how complicated the rules have become, it’s no surprise that many of us are left feeling a little confused.

“The reality is that confusion around our much-loved ISAs, which remains a staple of many Brits’ financial planning, is making it harder for people to achieve their financial goals. People need to be aware that with current interest rates so low, they’re almost guaranteed to lose money in real terms by using a Cash ISA.”

Innovative Finance ISAs are the least understood

Cash ISAs remain the best understood ISA in the market, with the research revealing that many people simply don’t understand the other types of ISAs available to them.

The Innovative Finance ISA (IFISA), which provides access to peer to peer investments within an ISA wrapper, was the least understood with 8 in 10 (79%) people saying they had little or no understanding of the product. When asked, more than 9 in 10 (94%) also didn’t know whether Innovative Finance ISAs invested in stocks and shares. When asked if the Innovative Finance ISA gives customers the option to invest in stocks and shares, only 7% knew this was false. One third (34%) thought it did, while 60% didn’t know.

With three new ISAs introduced in the last four years alone, there are now six mainstream ISAs available, potentially adding to consumers’ sense of confusion. The Junior ISA was introduced in 2011, yet more than two thirds (68%) of adults still said they didn’t understand it.

Rank

Least understood ISAs

% of UK adults who don’t understand

Year introduced

1st

Innovative Finance ISA

79%

2016

2nd

Lifetime ISA

70%

2017

3rd

Junior ISA

68%

2011

4th

Stocks and Shares ISA

60%

1999

5th

Help to Buy ISA

59%

2015

6th

Cash ISA

38%

1999

Sam Handfield-Jones added:

“Diversification is so important, but we know the majority of people with an ISA only have a Cash ISA. This might be because investing in stocks and shares feels too risky, but they don’t know or understand the other options out there.

“Innovative Finance ISAs offer a good middle ground between Cash and Stocks and Shares ISAs but, quite sensibly, most people don’t want to put their money into something they don’t understand. That’s why education and proper financial planning is key. We absolutely should be doing more to help people make the most of their money and empower them to make good decisions.”

Research conducted by Opinium Research 25th January to 28th January 2019 among a nationally representative sample of 2010 adults.

For journalists in their professional capacity only. The value of an investment, and any income from it, can fall as well as rise. Investors may not get back the full amount they invest. Past performance is not a reliable indicator of future results. Money invested through Octopus Choice is concentrated in loans backed by property and could be affected by market conditions. For the same reason, instant access to invested capital cannot be guaranteed. Peer-to-peer investments are not protected by the Financial Services Compensation Scheme (FSCS). Personal opinions may change and should not be seen as advice or a recommendation. We do not offer investment or tax advice. We recommend investors seek professional advice before deciding to invest. Octopus Choice is provided by Octopus Co-Lend Limited, which is authorised and regulated by the Financial Conduct Authority (722801). Issued by Octopus Investments Limited, which is authorised and regulated by the Financial Conduct Authority. Registered office: 33 Holborn, London, EC1N 2HT. Registered in England and Wales No. 3942880. Issued February 2019.

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